Volodymyr Zelensky, a comedian and political novice, won nearly three quarters of all votes in the presidential runoff on 21 April, trouncing Petro Poroshenko, the incumbent. Zelensky’s convincing victory comes against a backdrop of ongoing military conflicts with Russian-backed rebels, gross economic mismanagement and widespread corruption, as well as amid elevated anxieties ahead of parliamentary elections due later this year. Zelenksy’s political inexperience and vague policy prescriptions have exacerbated economic uncertainty and it remains to be seen whether he will be able to deliver on his promises and survive the oligarch-run economic regime.

Although Zelensky’s corruption- and poverty-fighting pledges could shore up economic sentiment, investors have thus far refrained from optimism. Instead, they are waiting for the new president to unveil a policy agenda which is expected to include a posture toward Ukraine’s relationship with the IMF. In addition, Zelensky’s ability to push forward with his reforms will be constrained significantly by the political and economic influence wielded by Ukraine’s oligarchs, as well as by a lack of support in parliament, which could prompt him to call snap parliamentary elections.

Nicolaie Alexandru and Trang Nguyen, economists at JPMorgan, explain:

“While the president is the most powerful political figure in Ukraine, the lack of a supporting majority in parliament will complicate Zelensky’s ability to implement his agenda. Also, it cannot be ruled out that a strong PM with strong support in parliament can take away initiatives from the presidency. […] Realizing that his support could suffer as voters see the new president of Ukraine facing the harsh economic, political and social realities of the country, Zelensky might be interested in snap elections.”

Moreover, amid lingering uncertainty, it appears unlikely that complying with the IMF will be high on the government’s agenda in the run-up to parliamentary elections. Elaborating on this point, Alexandru and Nguyen noted that, irrespective of snap elections, the IMF’s “conditions will fall in the background at least until a new coalition and a new government are formed”. Ukraine’s president “does not have a major role in delivering on IMF requirements”, wrote Alexandru and Nguyen. Instead, “the government and the parliament have a greater role in fulfilling conditions included in the current program” and, by “forcing lower gas prices […] and also introducing a cap on the upside, PM Groysman clearly signaled that he is moving away from IMF requirements as he announced he will be running in parliamentary elections”, explained Alexandru and Nguyen. On this basis, the two economists at JP Morgan concluded that “both Zelenskiy and most politicians are likely to call for populist measures rather than IMF-required reforms, especially given voters’ expectations”.

After accelerating at the fastest pace in seven years in 2018, the economy is set to lose traction this year. The implementation of crucial economic reforms and stamping out corruption will be key to driving momentum going forward, although it remains to be seen whether Zelensky will be able to achieve the above. Meanwhile, early indicators signal that the Kremlin will maintain its hardline approach; in mid-April, Russia issued a decree banning the exports of coal, crude oil and oil products to Ukraine and, just a week later, announced plans to fast-track Russian citizenship for Ukrainians. This suggests significant headwinds to sustainable growth both at home and from abroad, which will likely continue to threaten the outlook in the near future.

The Central Bank expects growth to ease to 2.5% this year, before picking up to 2.9% in 2020. FocusEconomics panelists, meanwhile, expect GDP to expand 2.7% in 2019, which is unchanged from last month’s forecast, and 2.9% in 2020

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